Following his election in 2014, President Joko ‘Jokowi’ Widodo is engaged in a vigorous campaign to reduce poverty in Indonesia, a battle he is fighting utilizing Islamic finance arms such as the Bank Mikro Waqf program. MARC ROUSSOT explores.
Behind their stalls or in their food trucks, thousands of Indonesian street-food vendors propose all kinds of rice, noodles and fried dishes. Rini, 32 years old, is one of them. Living in Kampung Kunyit in South Sumatra, she cooks and sells bags of emping, a type of crisp made of local nuts. She has recently used financing obtained from a micro Waqf bank to re-start her business after giving birth to her baby.
Similar to Rini, 6,764 Indonesians have obtained financing worth IDR1-3 million (US$65.71-197.12) from one of the 33 micro Waqf banks operating in Java, Sumatra, Sulawesi and Borneo. All combined, these financial institutions have extended funds amounting to IDR7.51 billion (US$493,467) in 12 months.
Launched in October last year as a pilot project by Otoritas Jasa Keuangan (OJK), micro Waqf banks are contributing, along with other measures, to alleviate poverty and inequality in the country. And it is yielding results. Poverty in Indonesia declined to its lowest level ever in March. A success for President Jokowi who placed poverty reduction as one of his highest priorities during the 2014 presidential election campaign.
According to the Central Statistics Agency, publishing data twice per year, the Republic’s relative poverty figure fell from 10.12% to 9.82% of the total population. Overall, 25.95 million Indonesians are now categorized as poor compared with 26.58 million in September last year.
The first results of micro Waqf banks, which recorded less than a handful of defaulters — all due to customers passing away — are promising and pushing the authorities to foray new regions of the archipelago. By the end of the year, nine other microfinance institutions are expected to be up and running, and there are plans to expand in Papua in the next few months.
To have greater impact, OJK is also broadening its model. Initially exclusively linked to Islamic boarding schools, micro Waqf banks are now also connected to universities. The first such structure was launched earlier this month at Universitas Aisyiyah Yogyakarta. The bank has 300 prospective customers, with 25 customers passing the mandatory group training for a financing facility of IDR1 million.
Two other universities, namely University Gadjah Madah and Universitas Islam Indonesia, have been shortlisted by OJK for the establishment of a microfinance institution under its umbrella. Never running short of new ideas, the regulator is also mulling the launch of micro Waqf banks linked to mosques.
“Not only Islamic boarding schools have a role in empowering people, so we are looking for other types of institutions which have opinion leaders concerned about empowering citizens,” OJK tells IFN.
An even greater step would be achieved with micro Waqf banks, currently only working on donations, tapping Indonesia’s Waqf fund. The project is in the pipeline but it is still unclear if regulations currently in place would allow such an initiative and if the Waqf fund’s board would give its approval.
This article first appeared in IFN Volume 15 Issue 43 on the 23rd of October 2018